Avis Buys Zipcar For $500 Million

To fuel your love of cars,

If mergers and acquisitions are any indication of future trends, it looks like the car-sharing sector could be on track for massive growth. That’s because one of America’s biggest rental companies, Avis, has just agreed to purchase America’s foremost car-sharing service, Zipcar, for the sum of $500 million.

According to a report in the Wall Street Journal, Avis may simply be responding to the writing on the wall. Since Zipcar went public nearly two years ago, it’s reported growth in double-digit territory. In the third quarter of 2012 alone, profits rose 15%, and the company’s stock price has climbed 4.6% in the past three months.

However, that hasn’t been enough to keep Zipcar in the black. In fact, the company has posted net losses every year since 2000, when it debuted. Apart from the cost of maintaining and purchasing vehicles, Zipcar has been expanding into new markets, and each market represents more capital investment for the company — investment that takes some time to recoup.

But that’s not enough to scare off Avis. In fact, Avis sees car-sharing as a huge growth market, with nearly $400 million in U.S. sales and an increasing presence around the globe. According to the WSJ article, Avis expects Zipcar to generate up to $70 million in “synergies” each year — though exactly what sort of synergies we can expect remains to be seen.

Our take

There are a number of legal distinctions between car-sharing companies and rental car companies, but for most practical purposes, the two are nearly identical. The main difference is that car-sharers pay some kind of subscription fee and are given the ability to rent by the hour, often on very short notice.

While this seems like a fairly small distinction, it tells us a good bit about the way that human civilization is evolving, with more urbanized populations that rely on subscription services rather than ownership of material goods. (Think of Netflix vs. the conventional DVD library, or even digital newspaper subscriptions vs. receiving papers at home.)

We have no doubt that the popularity of car-sharing companies like Zipcar will continue to grow. The question is: will they do so quickly, or will they struggle the same way that media outlets have done? And will they retain the somewhat “clubby” identity that’s kept them special, or will they become just another form of car rental into which no one invests much brand loyalty?